The draft regulations by the Central Bank of Kenya, requiring lenders to give borrowers a 30-day notice before forwarding their names for listing with the credit reference bureaus (CRBs) could not have come at a better time. These new rules should be endorsed and implemented as soon as possible to save borrowers, some of whom have been blacklisted for defaulting on very little amounts or on the basis of miscommunication.
The draft CRB regulations 2019 prohibit banks and other lending institutions from submitting the names of defaulters for listing without their knowledge as is the case currently. Borrowers will also have the right to know the reason their names are being presented for listing.
The introduction of the CRBs was meant to reward good borrowers while punishing serial defaulters. This move was quite understandable as there were borrowers who deliberately moved from one lender to another applying for loans they had no plans of repaying.
However, lenders have been primarily using credit scores to punish borrowers and not as a tool to offer better rates to those who promptly repay their loans. They rush to forward the names of defaulters without even contacting them to explore alternative channels of addressing the issue.
This has led to a situation where many people get listed for amounts they would have easily paid had they been notified and given time to pay up. Banks also forward the names of borrowers for listing even in cases where there is a dispute on the outstanding amount.
Meanwhile, the listed borrowers have been suffering with their complaints to the banks and CRBs taking too long to be resolved. With the current regulations heavily tilted in favour of the lenders and against the borrowers, many people’s lives have been unnecessarily messed up as they are unable to obtain loans to expand their businesses and for personal use such as emergencies. Thankfully, these are the issues that the proposed CBK regulations squarely address.
Another food for thought among lenders is that since the advent of the CRBs, bad loans have not reduced and they have in fact piled up. According to CBK data, gross non-performing loans for banks alone stood at a record high of Sh327.9 billion in February 2019. This calls for a rethink of the idea.